PE gives US pensions more bang for their buck

Private equity has performed better than public equity for US state pensions over the past 16 years.

Private equity produced a 10.7 percent annualised return across 21 state pensions between 30 June 2002 and 2017, according to a study from investment advisory firm Cliffwater. This compares with 6.6 percent generated by a custom public equity benchmark weighted 70 percent to the Russell 3000 Index and 30 percent to the MSCI ACWI ex-US.

The gap between private and public equity returns has grown in recent years. The 21 pensions Cliffwater analysed had seen the value of $1 invested into private equity grow to $5.10 as of 30 June, compared with $2.80 for public equities. This deviation was narrower in 2009, with private equity valued at $1.77 and public equities at $1.06.

All state pensions with private equity portfolios outperformed public market benchmarks over the period. There was a wider variance between top and bottom quartile results, highlighting the importance of fund selection among LPs, the report noted.